- 1 Definition / Scope
- 2 Market Overview
- 3 Key Metrics
- 4 Market Risks
- 5 Top Market Opportunities
- 6 Market Drivers
- 7 Market Restraints
- 8 Industry Challenges
- 9 Technology Trends
- 10 Regulatory Trends
- 11 Other Key Market Trends
- 12 Market Size and Forecast
- 13 Market Outlook
- 14 Technology Roadmap
- 15 Competitive Landscape
- 16 Competitive Factors
- 17 Key Market Players
- 18 Strategic Conclusion
- 19 References
- 20 Further Reading
Definition / Scope
Each Indian would have heard about the “Make In India” slogan buzzed by our Prime Minister Narendra Modi. The main aim of this slogan is to increase the manufacturing share of the country from 15% of Gross Domestic Product (GDP) to 25% and create more and more employment opportunities for the Indians. It can increase about ten million jobs per year.
Defence market of India is a multi-billion dollar, most lucrative market in the world. With the advent of the Make In India campaign, the defence sector has got shifted from the periphery to the core of the Indian manufacturing. Many of the CII reports are suggesting that the sector can augment the manufacturing in the India.
- India is the third largest armed force in the world
- 31.1% of the country’s budget is spent on the capital acquisitions
- Till the advent of the make in India, 60% of the requirements are fulfilled by imports
- About 90% of the Make project’s prototype development cost would be funded by the defence ministry
- Government has added many safeguards for the companies like it will reimburse the remaining 10% prototype development cost if the order is not placed within time limit
- Government has introduced new DPP( Defence Procurement Procedure) to shift the focus on Make-in-India, giving chance to small and medium scale industries
- The DPP has made clear departure from the previous practices and provides more flexibility to the end users and industry to work in collaboration
- Public sector industries in this sector have a cumulative turnover of about Rs. 50,000 crore
|Base Year||2018||Researched through internet|
There are many market risks which can be threatening to our new policies
- Lack of design capability in critical technologies
- Inadequate investment in research and development
- Inability to manufacture major sub-systems and components
- There are some critical technologies in which DRDO has performed poorly are Focal Plane Array (FPA), Active Electronically Scanned Array (AESA) Radar and Stealth Technology
- We are deficient in terms of capability in the areas of propulsion, weapons, and sensors
Top Market Opportunities
- This is an opportunity to the private sectors to invest through FDI
- DPP sees to the issues like incentives to make the defence industry move up the ladder
- Various ambiguities are removed ensuring transparency and offering a level playing field
- Government has taken into consideration the industry’s recommendation for the Defence Offset Guidelines. Nearly 14$ billion defence offset obligations will be discharged by foreign Original Equipment Manufacturers (OEMs) by 2028
- Trying to bridge the gap between intent and implementation the government has opened many co-development and co-production avenues for the companies
DPP has tried to encourage indigenous manufacture of the equipments for defence
- IDDM( Indigenously Designed, Developed and Manufactured) introduced to encourage the production
- Preference given to Buy Indian and Buy and Make Indian
- Foreign OEM has been allowed to select Indian Production agency
- Rationalisation of minimum indigenous content
- Definition of indigenous content has been made clear
- List of defence products has been articulated
- The defence security manual has been finalised for the private sector
- 90% funding of the projects by the government is very beneficial to industries
The capability of our defence industries in the field of value, self reliance in the field of critical technologies and policy initiatives all need to be examined carefully. The defence industry holds about Rs 2.29 lakh crore of the budget which is about 13% of the central government expenditure.
By analysing the graphs, it is seen that with the increase in the revenue allocation there is not that much increase in the wholesale price. The growth witnessed by the capital acquisition budget is 20% per year, not matching with the increase in the defence expenditure.
India should concentrate more on increasing design capability as it is seen very poor in critical technologies. There should be adequate investment in research and development area.
There is a sudden rush from big corporate who wants to invest in defence sector. Already about 50MoUs have been signed and over 350 licenses given. The government has reduced the number of export items.
But, even after that the number of recorded NoCs issued has been tripled as compared to the last year and five times the earlier years. The turnover for the year is assumed to be Rs. 2000 crore.
Although, there are many policies for which results can be disappointing considering the impact on the FDI inflow, export, augmentation, and long term partnership. Some reasons for this saying are
- The OEMs (Offset Policy guidelines, 2012) has a control in management of manufacturing
- The policies demand the reputed global manufacturing houses to come and set up manufacturing bases and bring front-end technology through some joint ventures
- The policies of India is giving less freedom as compared to that of China and South Korea who possess very liberal FDI policy
- Inadequate investment in the research and development. The big private sector houses such as Tata, L& T and, Mahindra and Mahindra are investing less than 1% in the area of R & D unlike the countries like France where corporate houses invest more than 10%
- Allocation of the amount to DRDO is about 6% of the defence budget which should be increased
- Value addition in the global value chain for India is very less
- There are supply constraints such as power-coal imbalance and inordinate project delays
- The expected benefits in terms of FDI inflow, high end technology, increased export , and outsourcing has not taken place
With the age of scientific development, Indian industry should enter into complex hi-tech and more challenging projects. There should be more identification and sharing of more Make projects across the three services to enable the Indian business houses to prepare their business case. That would not be bad if the Indian industry ties up with the foreign OEMs as a co-developer/ technology partner.
Policies have been put together to encourage the OFB, DPSUs and the Private sector to encourage the research and development wing for continual bringing up of gradation and improvement in systems in the field of manufacturing.
Academic and scientific institutions, SMEs, and public/private sectors are given full support for the necessary resources for developing defence equipments.
- The defence industry has been subjected to industrial license under the Industries Development and Regulation Act 1951 and manufacturing of small arms ammunition under the Arms Act, 1959.
- 51% of equity requirement for single largest Indian ownership removed.
- For the defence sector, a lock in period of three years on equity transfer has been done away.
- The new DPP policy is included in defence sector.
- For the development of the defence industry, the offset policy working to leverage the capital acquisitions.
- Procedures for granting the industrial licenses have been streamlined.
Other Key Market Trends
- Different types of incentives are added in the defence sector to promote it like tax incentive, state incentive, export incentive, and area based incentives
- Many schemes for export promotion are added like capital goods scheme, duty remission scheme, special focus product scheme, focus market scheme
- Under new Foreign Trade Policy incentives are issued as “merchandise Exports from India Scheme (MEIS)”
Market Size and Forecast
India is third largest armed forces in world and 31.1% of budget is spent on capital acquisitions. Till now, India’s requirement for defence sectors are filled by imports. The application of the Make In India campaign in the defence sector will help in opening of this sector for the private sector participation and because of which foreign original equipment manufacturers will form a joint venture with Indian companies and help in leveraging the domestic markets and expand their business globally.
Besides this it will help in making exports for long term. The policy of the government is for promoting self-reliance, indigenisation, technology up gradation and achieving the economies of developing capabilities for export.
Government is trying to endeavour for building up a robust indigenous defence industrial base by encouraging the private sector involvement in design, development, and manufacture of the equipments.
There is an assumption of 295 billion INR of contractual offset obligation in next 5-6 years. There is an expectation of 50 to 100% growth due to offsets. In the next year, the assumption is for crossing Rs 1 billion in exports. Government has asked PSUs to broaden their vendor base and get outsourcing of products, so that the development of the private industry also gets facilitated.
A study done by Institute for Defence Studies and Analyses for Aerospace Industry.
Competition is very important within the defence sector as it help in efficiently meeting of day-to-day military needs and for successful modernization.
For encouraging the national competence in producing state-of-the-art defence equipment/weapon system/platforms within the limit of price lines and time limits, government has renewed many of its policies. Many viable approaches like formation of consortia, joint ventures, and public and private sector partnerships etc. are taken up by the government.
Himachal Futuristic Communication Ltd., Micronel Global Engineers Pvt. Ltd., Marine Electrical (I) Pvt Ltd., Defsys solutions Pvt. Ltd., Naistoco India Pvt. Ltd., Comint Systems and Solutions Pvt. Ltd., Ananth Technologies Ltd. Etc. Also some famous companies like Tebma Shipyards Ltd., Premier Explosives Ltd., Titagarh Wagons Ltd., Ashok Leyland Defence Systems Ltd. Etc have entered in the competition.
Defence and aerospace are important growth drivers identified by Tata group chairman.
Several types of competition is there within DoD like competition for development and for giving value added products.
Each company’s products will be duly checked for quality and power, before entering into the defence sector. Because of this set of procurement procedures there is enormous pressure on the companies to produce value added products. So firstly they have to compete for the projects and then have to compete with the technology to produce highly efficient equipments for military.
Key Market Players
- Himachal Futuristic Communication Limited: It was initially known as domestic telecom equipment maker. But now it has got licensed for producing defence equipments.
- Tata group: Tata group companies have entered the race by getting engaged in defence and aerospace sector. It is also trying to get order for making Future Infantry Combat Vehicles or FICVs for Indian army. It is currently working on projects including missiles, radars, aerospace and unmanned aerial vehicles.
- Larsen & Toubro: It is in final stage of getting order for the production of self-propelled guns.
- Mahindra group: This group is supplying Willys jeep, a rugged vehicle to the army. It is also a supplier of trucks, armoured vehicles, and other equipments.
Many of the analysts have set 2027 as the target year by which elusive goal of 70% self-reliance can be achieved. Also our armed forces have set the year 2027 as the current long term integrated perspective plan 2012-27.
India is witnessing a significant stickiness as can be seen in its manufacturing sector. However, the make in India campaign can provide a wonderful opportunity for India to become a part of global supply chain and generate enormous number of employment opportunities.
The Prime Minister has set his foot very accurately and now its turn of the ministry of Defence to go with him step by step to get better synergy with the manufacturing sector.